Aggregate Demand and Aggregate Supply ch 10

These flashcards cover essential concepts from the AD-AS Framework, focusing on aggregate demand and supply, their shifters, and their implications in macroeconomic equilibrium.

What is the primary goal of the AD-AS framework?

To forecast where the economy is headed.

What does AD stand for in the AD-AS framework?

Aggregate Demand.

What does AS stand for in the AD-AS framework?

Aggregate Supply.

How is macroeconomic equilibrium represented in the AD-AS framework?

It occurs where the aggregate demand and aggregate supply curves intersect.

What is the shape of the aggregate demand curve?

Downward-sloping.

What is the shape of the aggregate supply curve?

Upward-sloping.

What does real GDP measure in the context of the AD-AS framework?

The quantity of output produced across the whole economy.

How is the average price level measured in the AD-AS framework?

By the GDP deflator.

What causes the aggregate demand curve to shift to the right?

An increase in aggregate expenditure.

What causes the aggregate demand curve to shift to the left?

A decrease in aggregate expenditure.

What reflects the total amount of goods and services that people want to buy across the economy?

Aggregate expenditure.

What are the components of aggregate expenditure?

C (Consumption), I (Investment), G (Government purchases), NX (Net exports).

What does a rise in real interest rates do to aggregate expenditure?

Reduces aggregate expenditure.

What effect does the wealth effect have on aggregate demand?

A higher price level leads to less aggregate demand.

What type of economic forces summarize trade-offs for goods across products?

Microeconomic forces.

What type of economic forces summarize trade-offs across time?

Macroeconomic forces.

What shifts the aggregate supply curve?

Changes in production costs.

What happens to the aggregate demand curve when government spending increases?

It shifts to the right.

What happens to the aggregate supply curve if production costs rise?

It shifts to the left.

In the long run, how does a change in the price level affect real output?

It has no effect.

What is one way that productivity can affect aggregate supply?

Higher productivity lowers production costs, shifting aggregate supply to the right.

What is stagflation?

The combination of declining GDP and rising prices.

What reaction does the Fed have to high inflation concerning interest rates?

The Fed raises interest rates in response.

What determines the short-run aggregate supply curve?

Sticky prices lead to an upward-sloping AS curve.

What is the role of fiscal policy in the context of aggregate demand?

To influence economic conditions through government spending and tax policies.

What is the multiplier effect?

A measure of how much GDP changes from each additional dollar of spending.

What should be evaluated to diagnose a macroeconomic shock?

Whether the shock shifts aggregate demand or aggregate supply.